Earnings and hints of peaking inflation buoy stocks

LONDON: Earnings from Walt Disney, Siemens and AstraZeneca dispelled investor worries about the economy and future pace of interest rate hikes, helping stocks advance to one-year highs in Europe.

Firmer S&P 500 futures and Nasdaq futures were underpinning sentiment in Europe and Asia, the dollar and crude oil eased, with gold firmer. U.S. jobless claims data is due before the opening bell on Wall Street.

A number of Federal Reserve speakers echoed Chair Jerome Powell on Wednesday in saying that interest rates are set to go higher, with attention turning to U.S. inflation data next week.

Meanwhile, Sweden's central bank on Thursday raised its key interest rate by half a percentage point to 3%, and forecast further tightening in the spring.

Investors pounced on better-than-expected earnings from Siemens, AstraZeneca and Disney, helping to pierce uncertainty over the interest rate outlook.

Credit Suisse Group, however, bucked the trend after reporting its worst annual loss since the global financial crisis in 2008, coupled with outflows of more than $120 billion in the fourth quarter, sending its shares 8% lower.

The STOXX index of European shares rose 1% to its highest level in a year as investors pinned hopes on peaking inflation and a major recession now looking less likely on the continent.

"I think there will be outperformance in Europe simply because energy prices have come down a lot more than perhaps was thought to be the case last year," said Mike Hewson, chief market analyst at CMC Markets.

German consumer prices, harmonised to compare with other European Union countries, rose by a less-than-anticipated 9.2% on the year in January, helping to reassure markets that prices have peaked.

"It's not going to change the ECB's mind for a 50 basis point rate hike in March," Hewson said.

The MSCI all country stock index was up 0.35%, building on gains of about 7.5% so far this year after a loss of 20% in 2022.

"We are still caught in this vacillating macro economic dynamic with risk on, risk off again. People are still calibrating their way through what normal growth looks like," said Paul Major, manager of Bellevue Healthcare Fund plc.

It was unclear if China will come "roaring back" in the second half of the year to drive the global economy, and if it does, whether that would trigger another round of inflationary pressures, Major said.

"The U.S. is on fire... I think I would want to be overweight U.S. equities for the next three to five years because they've got energy independence, a robust economy," Major said


MSCI's broadest index of Asia-Pacific shares outside Japan was up 0.5%, after being down earlier in the session, although Japan's Nikkei remained slightly weaker.

China's blue chips rose 1.3%, pulling away from its one-month trough, while Hong Kong's Hang Seng Index was up 1.6%.

Barclays upgraded their forecast of China's economic growth to 5.3% this year, from 4.8% previously, while Fitch revised up their forecasts on China's economic growth this year to 5%. Both cited accelerated recovery in consumer spending.

The bond market rallied a little after being caught wrongfooted by the January blockbuster U.S. jobs report, forcing many to reposition for a higher peak in the Fed funds rate.

The two-year Treasury yield, which rises with traders' expectations of higher Fed fund rates, eased to 4.4316% on Thursday, while the yield on benchmark 10-year Treasury notes slid to 3.6012%.

Futures are pricing in the Fed's target rate to peak at 5.122% in July, about 25 basis points higher than last week, and that by December it will have declined to 4.804%, a jump of about 40 basis points since a week ago.

In the currency markets, movements were rather muted. The dollar index slid 0.5%.

In the oil market, Brent crude futures were down 0.3% to $84.91 while U.S. West Texas Intermediate (WTI) crude eased 0.2% to $78.23.

Gold was slightly higher. Spot gold traded at $1,881 per ounce, up 0.3% on the day. - Reuters

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